diff --git a/graph_enrich.py b/graph_enrich.py
index 6135a97c..c2d7b70d 100644
--- a/graph_enrich.py
+++ b/graph_enrich.py
@@ -1589,8 +1589,11 @@ def detect_microservice_from_path(cwd: Path, source_root: Path) -> str | None:
     if overrides and cwd_resolved.name in overrides:
         return cwd_resolved.name
 
-    # Call existing microservice_for_path to detect microservice from build markers
-    ms = microservice_for_path(str(cwd_resolved), source_resolved)
+    # microservice_for_path walks _bounded_parents which excludes the path itself.
+    # For query-time detection we need cwd included in the walk, so pass a synthetic
+    # child path so that cwd appears as a parent in the build-marker scan.
+    synthetic = cwd_resolved / "__scope_probe__"
+    ms = microservice_for_path(str(synthetic), source_resolved)
     return ms if ms else None
 
 
diff --git a/java_codebase_rag/cli.py b/java_codebase_rag/cli.py
index a3281e71..5667820e 100644
--- a/java_codebase_rag/cli.py
+++ b/java_codebase_rag/cli.py
@@ -229,18 +229,23 @@ def _add_verbosity_flags(p: argparse.ArgumentParser) -> None:
 
 def _cmd_init(args: argparse.Namespace) -> int:
     cfg = _resolved_from_ns(args)
-    # Check for parent config
-    from java_codebase_rag.config import discover_project_root, YAML_CONFIG_FILENAMES
+    # Check for parent config or index
+    from java_codebase_rag.config import discover_project_root, find_yaml_config_file
     parent_config_dir = discover_project_root(cfg.source_root.parent)
     if parent_config_dir is not None:
-        parent_config = parent_config_dir / YAML_CONFIG_FILENAMES[0]
-        if not parent_config.is_file():
-            parent_config = parent_config_dir / YAML_CONFIG_FILENAMES[1]
-        print(
-            f"Warning: found existing config at {parent_config}. "
-            f"Creating a new project here will create a separate index.",
-            file=sys.stderr,
-        )
+        parent_config = find_yaml_config_file(parent_config_dir)
+        if parent_config is not None:
+            print(
+                f"Warning: found existing config at {parent_config}. "
+                f"Creating a new project here will create a separate index.",
+                file=sys.stderr,
+            )
+        else:
+            print(
+                f"Warning: found existing index at {parent_config_dir / '.java-codebase-rag'}. "
+                f"Creating a new project here will create a separate index.",
+                file=sys.stderr,
+            )
     _startup_hints(cfg)
     cfg.apply_to_os_environ()
     occupied, paths = index_dir_has_existing_artifacts(cfg.index_dir)
diff --git a/java_codebase_rag/config.py b/java_codebase_rag/config.py
index ada9a540..3504fbd2 100644
--- a/java_codebase_rag/config.py
+++ b/java_codebase_rag/config.py
@@ -123,20 +123,33 @@ def find_yaml_config_file(source_root: Path) -> Path | None:
     return None
 
 
+def _has_index_dir(directory: Path) -> bool:
+    """True if *directory* contains a non-empty ``.java-codebase-rag/`` index directory."""
+    idx = directory / ".java-codebase-rag"
+    return idx.is_dir() and any(idx.iterdir())
+
+
 def discover_project_root(start: Path) -> Path | None:
-    """Walk up from start to find the directory containing a config file.
+    """Walk up from start to find the directory containing a config file or index.
 
-    First match wins (closest to start). Stops at $HOME inclusive — checks $HOME
-    itself but does not walk past it. Returns None if no config found.
+    Looks for ``.java-codebase-rag.yml`` / ``.java-codebase-rag.yaml`` (preferred)
+    or the ``.java-codebase-rag/`` index directory as a project boundary marker.
+
+    First match wins (closest to start). Config file takes priority over index
+    directory at the same level. Stops at $HOME inclusive — checks $HOME itself
+    but does not walk past it. Returns None if no marker found.
     """
     start = start.resolve()
     home = Path.home().resolve()
 
     current = start
     while True:
-        # Check if current directory contains a config file
+        # Config file is the primary anchor
         if find_yaml_config_file(current) is not None:
             return current
+        # Index directory is the secondary anchor (supports indexes without config)
+        if _has_index_dir(current):
+            return current
 
         # Stop if we've reached home (check home itself, but don't walk past it)
         if current == home:
diff --git a/tests/test_config.py b/tests/test_config.py
index 75035725..3da68f70 100644
--- a/tests/test_config.py
+++ b/tests/test_config.py
@@ -80,6 +80,62 @@ def test_discover_project_root_first_match_wins(self, tmp_path):
         # Should find the closest config (subdir), not the parent (tmp_path)
         assert result == subdir
 
+    def test_discover_project_root_finds_nonempty_index_dir(self, tmp_path):
+        """Non-empty .java-codebase-rag/ directory acts as project anchor."""
+        subdir = tmp_path / "microservice"
+        subdir.mkdir()
+        idx = tmp_path / ".java-codebase-rag"
+        idx.mkdir()
+        (idx / "code_graph.kuzu").write_bytes(b"\x00" * 16)
+
+        result = discover_project_root(subdir)
+        assert result == tmp_path
+
+    def test_discover_project_root_skips_empty_index_dir(self, tmp_path):
+        """Empty .java-codebase-rag/ directory does not anchor the project."""
+        subdir = tmp_path / "microservice"
+        subdir.mkdir()
+        # Empty index dir at subdir level
+        empty_idx = subdir / ".java-codebase-rag"
+        empty_idx.mkdir()
+        # Real index at parent level
+        real_idx = tmp_path / ".java-codebase-rag"
+        real_idx.mkdir()
+        (real_idx / "code_graph.kuzu").write_bytes(b"\x00" * 16)
+
+        result = discover_project_root(subdir)
+        assert result == tmp_path
+
+    def test_discover_project_root_config_wins_over_index_dir(self, tmp_path):
+        """Config file takes priority over index dir at the same level."""
+        subdir = tmp_path / "subdir"
+        subdir.mkdir()
+        # Index dir at tmp_path level
+        idx = tmp_path / ".java-codebase-rag"
+        idx.mkdir()
+        (idx / "code_graph.kuzu").write_bytes(b"\x00" * 16)
+        # Config at subdir level
+        config_file = subdir / YAML_CONFIG_FILENAMES[0]
+        config_file.write_text("# child config")
+
+        deep = subdir / "deep"
+        deep.mkdir()
+        result = discover_project_root(deep)
+        # Config at subdir is closer and wins
+        assert result == subdir
+
+    def test_discover_project_root_both_markers_same_level(self, tmp_path):
+        """When both config and index dir exist at same dir, both resolve correctly."""
+        # Both markers in the same directory
+        config_file = tmp_path / YAML_CONFIG_FILENAMES[0]
+        config_file.write_text("# config")
+        idx = tmp_path / ".java-codebase-rag"
+        idx.mkdir()
+        (idx / "code_graph.kuzu").write_bytes(b"\x00" * 16)
+
+        result = discover_project_root(tmp_path)
+        assert result == tmp_path
+
 
 class TestSourceRootFromYaml:
     """Tests for source_root YAML field parsing and resolution."""
diff --git a/tests/test_microservice_scope.py b/tests/test_microservice_scope.py
index 0200b59e..84a60807 100644
--- a/tests/test_microservice_scope.py
+++ b/tests/test_microservice_scope.py
@@ -21,20 +21,30 @@ def test_detect_microservice_deep_inside(self, tmp_path):
         assert result == "microservice-a"
 
     def test_detect_microservice_at_microservice_root(self, tmp_path):
-        """At microservice root detects that microservice."""
+        """At microservice root (cwd = the dir with pom.xml) detects that microservice."""
         ms_dir = tmp_path / "microservice-b"
         ms_dir.mkdir()
 
         # Add a build marker
         (ms_dir / "build.gradle").write_text("plugins { id 'java' }")
 
-        # Use a subdirectory inside the microservice (not the root itself)
-        sub_dir = ms_dir / "src"
-        sub_dir.mkdir()
-
-        result = detect_microservice_from_path(sub_dir, tmp_path)
+        # cwd IS the microservice root — the most common user scenario
+        result = detect_microservice_from_path(ms_dir, tmp_path)
         assert result == "microservice-b"
 
+    def test_detect_microservice_nested_modules(self, tmp_path):
+        """Nested build markers scope to outermost microservice, not inner module."""
+        ms_dir = tmp_path / "my-service"
+        ms_dir.mkdir()
+        (ms_dir / "pom.xml").write_text("<project></project>")
+        module_dir = ms_dir / "my-module"
+        module_dir.mkdir()
+        (module_dir / "pom.xml").write_text("<project></project>")
+
+        # From inside the module, should scope to the service, not the module
+        result = detect_microservice_from_path(module_dir, tmp_path)
+        assert result == "my-service"
+
     def test_detect_microservice_at_system_root(self, tmp_path):
         """At system root returns None (no specific scope)."""
         result = detect_microservice_from_path(tmp_path, tmp_path)